All Forum Posts by: Joshua Thompson

 The passive losses can be carried forward. If you have $5000 loss last year that you couldn't use and this year has $10000 in losses you can use, perfect case you would have a total of $15000 in passive losses to offset that W-2 income.

@Daniel B. Hey man, not a CPA or EA but here are a few things I've picked up on and recommend you verifying with a CPA or EA.

The passive loss a rental produces each year can be used against your earned income (W-2 wages) if you earn below $150k married. There is a phase-out area your CPA/EA can speak more about if it applies to you. However, only up to $25k in passive losses can be used to offset earned income in one tax year.

Example: You earn a $75k W-2 income and have a $26k passive loss from a rental. You can use $25k of the $26k to offset your W-2 wage.

Taxes usually aren't cut and dry like that so you must realize there are other factors that can affect this and I'm really just scratching the surface.

However, I am not sure if you are able to carry forward ALLOWABLE passive losses. You can for sure carry forward passive losses that you were unable to use in previous years.

The number you put in for your allowances on a W-4 is what I believe you're talking about. What number to put there all depends on your senerio, for example how much you make, how many dependents, are you married ect. With this information your CPA/EA should be able to give you the number you're looking for. If you earn a lot on your W-2 job you may want to claim 0 but it all depends on your situation and numbers.

 Sweet! Thanks for the correction. I'll read up on it more.

You're right on the not putting the property in an S-Corp. However, when you are an LLC and elect to be taxed like an S-Corp in CA to get around the gross receipt tax, that's different than having the properties in an S-Corp isn't it? Correct me if I'm wrong

@Kaveh E.

Not a tax professional, but what you may be able to do to is form an LLC but elect to be taxed as an S corp. This should get rid of the California gross receipt tax that I believe you are referring to.

As far as the $500k ($250k if single) exclusion, if the property is your primary residence and you meet the requirement (a big one being have lived there for 2 of past 5 years) you can exclude up to $500k of the gain. However, once you start getting into the whole short term rental of the property I would recommend finding a good CPA/EA that specializes in real estate.

Also if the property is your primary residence and you aren't renting it at the moment I don't see a need to put it inside of an LLC. Honestly, it may be more of a headache then its worth.

Don't stop here, find a good professional there are plenty on BP. Good luck

Well first I would make sure they work with other clients in your industry and possiibly specialize in the industry. A CPA/EA that specialize in your industry COULD be worth the extra dollars instead of using a general CPA/EA. Good first place to start.

 Got it. Thank you for the response!

How much you'll pay in taxes would be hard to calculate with the information given. I'm sure one of the tax pros here can give you the max % and you can use that to be safe. As far as I know, because it's a flip I'm pretty sure you'll need to pay SE taxes (15.3%) and ordinary income tax (whatever your tax bracket may be) as well as any depreciation recapture you took in 2018 (this year tax return) which I would assume none because you were probably still in the process of renovating. 

You also have to look at what you hope to achieve from investing in real estate. Do you want to make the flip money or build a portfolio with passive income?

Regarding your waiting one year, I believe (and anyone correct me if I'm wrong) if your intent is to flip the property you're still going to need to pay the SE tax. I'm pretty sure no matter what your flip will not be taxed at the capital gains rate but at the ordinary income rate. Not too sure on this one though.

You would also have to look at 5% of the sale price will go to the agent (unless you negotiate it out). However, no matter when you sell it a percentage will be going to the agent.

*Not a CPA, EA or tax professional. Maybe a few more years till then*

If the situation was different and David was flipping properties inside an LLC would he still be safe from SE tax?

My guess would be yes he would still be safe but if it was a sole prop then he would be subject to SE tax.